TY - BOOK ID - 85502376 TI - FX Intervention in the New Keynesian Model AU - Alla, Zineddine. AU - Espinoza, Raphael. AU - Ghosh, Atish. PY - 2017 SN - 1484323874 1484323831 PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Foreign Exchange KW - Inflation KW - Investments: General KW - Macroeconomics KW - Monetary Policy KW - Central Banks and Their Policies KW - Macroeconomics: Consumption KW - Saving KW - Wealth KW - Investment KW - Capital KW - Intangible Capital KW - Capacity KW - Price Level KW - Deflation KW - Currency KW - Foreign exchange KW - Consumption KW - Return on investment KW - Exchange rates KW - National accounts KW - Prices KW - Economics KW - Saving and investment KW - United States UR - https://www.unicat.be/uniCat?func=search&query=sysid:85502376 AB - We develop an open economy New Keynesian Model with foreign exchange intervention in the presence of a financial accelerator mechanism. We obtain closed-form solutions for the optimal interest rate policy and FX intervention under discretionary policy, in the face of shocks to risk appetite in international capital markets. The solution shows that FX intervention can help reduce the volatility of the economy and mitigate the welfare losses associated with such shocks. We also show that, when the financial accelerator is strong, the risk of multiple equilibria (self-fulfilling currency and inflation movements) is high. We determine the conditions under which indeterminacy can occur and highlight how the use of FX intervention reinforces the central bank’s credibility and limits the risk of multiple equilibria. ER -